South Florida foreclosure wave caught many flat-footed

January 14, 2011|BY TOLUSE OLORUNNIPA, The Miami Herald

Florida, which is one of 23 states where foreclosures must first be approved in court, has specific rules that govern foreclosure legal proceedings, and recent reports, testimony and court records show that many of those rules have been breached regularly by banks and their affiliates.

Thousands of homeowners have been caught in the middle, as banks have admitted to regularly foreclosing on people who were in line for a mortgage modification.

COURTS

It did not take long for the effects of the housing collapse to spill over to the judicial system, flooding local courts with four times the normal number of foreclosure cases.

South Florida's courthouses have amassed a backlog of more than 100,000 pending foreclosure cases, and hundreds of fresh filings are coming each week.

Jorge J. Perez, a former Miami-Dade County judge, said the crisis hit the courts without warning, overwhelming an already understaffed judiciary.

"The sudden rush of foreclosures came as a total shock to court systems all over the country," he said. "[Florida's] state court system prior to this crisis was already stretched thin — each judge had thousands of cases on their docket. And then this tsunami of new cases hit."

As civil judges' caseloads have quadrupled over the past three years, local chief judges have pitched a number of different remedies, launching a mandatory foreclosure mediation program and creating a separate division for handling foreclosure cases.

Hoping to stem the rash of defaults, lawmakers and judges have joined forces to speed along the foreclosure process, but the methods for doing this have recently come into question.

The Florida Legislature gave circuit courts a $9.6 million grant last year with a goal of cutting the backlog by 62 percent within a year — but critics say it has created a "rocket docket" that favors lenders and neglects homeowners' rights.

"We have Bank of America, Wells Fargo, Citibank and Chase openly admitting to what they're trying to say are irregularities — but are actually fraud upon the courts," said Lisa Epstein, a housing activist who regularly attends foreclosure hearings in South Florida. "Our court system responds by ramping this up and pushing [cases] through."

In September, banks began halting their foreclosure operations to review hundreds of thousands of legal documents for errors and inconsistencies. Most lenders restarted their foreclosures shortly after the moratorium, but banks continue to face allegations of fraud from local defense lawyers and lawmakers on Capitol Hill.

ONLINE AUCTIONS

After distressed homes slog their way through foreclosure court, they usually land at the office of the county clerk, who handles the public auction process.

As foreclosures skyrocketed, that process became clogged by the sheer volume of cases coming in — 7,000 per month in Miami-Dade alone in early 2010. Boxes of old case files piled up at the county clerk's offices, and cases spent months waiting to go to auction at the county courthouse.

With more than 110,000 pending auctions and a closeout rate of about 400 auctions per week, the crisis outgrew the capability of the courthouse, said Miami-Dade County Clerk Harvey Ruvin.

Last January, Miami-Dade and Broward counties moved their auction system from the courthouse to the Internet, more than quadrupling the number of cases they could handle per week.

"Going online with the foreclosures was an important piece in terms of helping to move things through the process so that we could help globalize the distressed market in South Florida," Ruvin said.

The backlog has been cut nearly in half, Ruvin said, but it still remains far above traditional levels.

HOMEOWNERS

In the meantime, the length of time it took for banks to close a foreclosure case has grown steadily to its current average of 16 months nationwide and 20 months in Florida, according to Lender Processing Services.

In South Florida, where nearly half of all homeowners owe more on their homes than they are worth, 20 months of rent-free living adds an incentive for borrowers to voluntarily stop paying their mortgages.

The impact is felt by non-distressed homeowners as well, since growing numbers of foreclosures in the neighborhood drag down home values. Sellers of non-distressed homes found that buyers preferred to buy foreclosures or homes worth less than their mortgage amounts in 2010, when about 50 percent of South Florida sales involved distressed properties. To compete, sellers have had to slash prices significantly, steepening South Florida's historic decline in home values.

OTHERS

The housing collapse pulled the rug from under a number of other organizations, and many of them are only now beginning to regain their footing.